TMTPOST -- The American depositary receipts (ADRs) of PDD Holdings Inc. initially dropped as much as 5.4% and then pared losses, ending Thursday with a gain of 4%. Shares rallied even though Pinduoduo and Temu’s operator reported slower-than-expected revenue, hit by the growing uncertainty and fierce competition.
PDD posted revenue of RMB110.61 billion (US$15.3 billion) for the quarter ended December 31, missing analysts’ estiamtes of RMB116.03 billion. The top line further slowed down with a 24.4% year-over-year (YoY) increase. That was the slowest growth since the first quarter of 2022, compared with a 44% YoY rise three months ago.
PDD’s two segments saw further sales slowdown for the December quarter, reflecting weak demand in spite of deep discounts and Chinese government’s fiscal stimulus to boost consumption. Revenue from online marketing services and others gained 17% YoY to RMB57.01 billion after a 24% YoY gain for the preceding quarter. Transaction services, the charges the company collected from merchants for transactions on its platform, hauled RMB53.60 billion with a 33% YoY increase, compared with a 72% YoY surge from July to September.
PDD’s bottom line also cooled for the last quarter of 2024, but still better than Wall Street anticipation. Net income climbed 18% YoY to RMB27.45 billion, topping analysts protection of RMB27.00 billion. On non-GAAP basis, adjusted net income rose 17% YoY to a stronger-than-anticipated RMB29.85 billion. Adjusted diluted earnings per American depositary share (ADS) jumped 16.3% YoY to RMB20.15, while analysts projected the Chinese e-commerce heavyweight would earn RMB19.86 per ADS.
The “earnings beat should help restore market confidence in its 2025 earnings outlook,” Morgan Stanley analysts wrote, adding that the stock was trading at just 11-times projected 2025 earnings. “Because of the tariff overhang on Temu and competition in EC, market expectations for the year are not high.”
In an earnings briefing with analysts on Thursday, PDD Co-CEO Chen Lei quoted the previous warning that the company’s significant ecosystem investment coupled with fast changing external environment and intensified competition landscape will impact short-term financials, and noted its commitment to ecosystem investments remain unwavering. “We are confident that these efforts will deliver sustainable long term returns,” said Chen.
“This quarter, we delivered stable financial results supported by the resolute execution of our high-quality development strategy,” PDD VP of Finance Liu Jun said in a statement. “Looking ahead, we will continue to prioritize investments in the platform ecosystem as the cornerstone of our long-term value creation strategy.”
Chen told analysts the slowing revenue growth in recent quarter was due to external uncertainties and intense competition. In the meantime, PDD’s increased investments in merchant support and platform ecosystem development may create fluctuations in profitability. However, Chen noted PDD has expected such fluctuation in revenue and profit when the company started such investment. Up-and-down in the short run will not shake PDD’s confidence in long-term goals for it believes sustained investments and optimization can create a healthy e commerce ecosystem, according to Chen. He said PDD’s efforts have already received positive feedback from merchants and supply side optimizations are driving new consumption trends on the consumer side, which has started to foster a virtuous cycle.
When asked about the impact of overseas business amid changing macro conditions and policies and PDD’s planned response, Chen said environment that the company will first strictly comply with the laws and regulations to ensure full compliance in its operations. And on that basis, it is proactively communicating with external parties across the market to continuously refine its services and compliance standards. Chen acknowledged the external changes taken together will inevitably bring some challenges to PDD’s global business, but pledged to remain committed to delivering high quality products to the global consumers.
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